2019 (7) TMI 642 - HC - Income Tax

Rejection of books of accounts u/s 145 - According to the AO, the Assessee had inflated the expenses and showed artificial excess consumption to the tune of 9.67% - HELD THAT - Mr. Hossain was unable to dispute the fact that for the immediately preceding and subsequent AYs, the Assessee s books of accounts were in fact accepted by the AO in scrutiny under Section 143 (3) of the Act without making any addition. He was unable to explain how this would be tenable particularly considering that it is inconceivable that the accounts of a particular AY are found unacceptable under Section 145 of the Act but not those of the immediately preceding or subsequent AYs. If accounts of a particular AY are found not reflecting the true state of affairs, they would undoubtedly impact the accounts for the immediately preceding or subsequent AY. It is inconceivable that the accounts of one particular AY in isolation is rejected and not those of the immediately preceding or subsequent AY. While as explained in Honey Enterprises v. Commissioner of Income Tax 2015 (12) TMI 519 - DELHI HIGH COURT the rule of consistency is not inflexible, and has to be applied given the facts and circumstances of a particular case, as far as the case on hand is concerned, for the reason explained hereinabove, its invocation by the ITAT in the impugned order cannot be faulted. In view of the detailed findings given by the CIT(A) by examining the accounts afresh and holding that there was no justification for the AO to make the addition, which findings have been concurred with by the ITAT, no case is made out for remand of the matter to the CIT (A).

Summary

Issues:
1. Delay in re-filing the appeal
2. Justification of ITAT in affirming the order of CIT (A) in deleting the addition made by AO under Section 145 of the Act

Analysis:
1. The judgment addresses the delay in re-filing the appeal, which was condoned and allowed by the court. The application for condonation of delay was accepted for reasons explained in the applications.

2. The main issue revolved around the justification of the ITAT in affirming the order of the CIT (A) in deleting the addition made by the Assessing Officer (AO) under Section 145 of the Income Tax Act. The AO had made an addition of &8377; 1,77,73,854/- on account of revised gross profit, alleging that the Assessee had inflated expenses and showed artificial excess consumption. However, the CIT (A) noted discrepancies in the AO's allegations and found the addition not sustainable. The ITAT dismissed the Revenue's appeal, citing the rule of consistency and lack of concrete material to reject the book results. The court highlighted that for the preceding and subsequent assessment years, the Assessee's accounts were accepted without any additions, raising questions about the rejection of accounts for the specific year in question.

3. The Senior Standing Counsel for the Revenue challenged the ITAT's order, arguing that the AO had provided detailed reasons for suspecting round-tripping transactions. However, the court found the CIT (A)'s findings, which were upheld by the ITAT, to be conclusive. The court emphasized the rule of consistency and the need for a fresh determination by the CIT (A) was deemed unnecessary based on the detailed examination already conducted.

4. Ultimately, the court concluded that no substantial question of law arose from the ITAT's order, leading to the dismissal of the appeal. The judgment underscored the importance of consistent treatment of accounts across assessment years and upheld the decision of the ITAT in affirming the deletion of the addition made by the AO.